US Producer Prices Rise at Fastest Pace in Six Months

Producer prices in the United States rose at the fastest pace in six months, although inflationary pressures remained relatively contained in 2013.

The Producer Price Index, which monitors price changes in US primary markets, rose 0.4 percent in December and at an annualized rate of 1.2 percent, official data from the Labor Department showed today. A median estimate of economists polled by Thomson Reuters forecasted an annual rate of 1.1 percent. The so-called core PPI, which excludes volatile products such as food and energy, rose 0.3 percent in December and at an annual rate of 1.4 percent.

Despite the end-of-year surge, inflationary pressures were contained throughout 2013. The 1.2 percent annual gain was the slowest since 2008, when the financial recession gripped the US economy. Weak inflationary pressures will probably give the Federal Reserve more wiggle room to gradually reduce the pace of record stimulus amid rapidly declining unemployment.

Thursday’s report on consumer inflation is likely to show prices rose in December, according to a median estimate of economists surveyed by Reuters. However, with inflation well below the Fed’s 2 percent target, policymakers are likely to approach the January 28-9 FOMC meetings with caution. That said, market participants are split as to whether the central bank will initiate its second taper in as many months. The Fed is tapering bond purchases by $10 billion this month in response to falling joblessness.

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